Asia's emerging markets sold off last week as the derisking trend continues. DBS Research says while shortterm pressure may still persist, a repeat of the 1997 Asian financial crisis (AFC) is unlikely. The accelerated currency, bonds and equity market slides accentuated the downside risks to growth as sentiments weakened. But the bigger and longer lasting reason behind capital inflows into Asia has always been structural and it will soon return. In the context of ASEAN, Singapore looks resilient. But a slow growth and a tightening environment is unlikely to drive the index.

For the Singapore market, the reversal in fund flows out of Asia and emerging markets back to developed economies, triggered by the anticipation of QE tapering, rising US 10-year treasury yields and a rebound in the USD, Euro and GBP had exposed the structural vulnerabilities of emerging market economies with high current account deficits. While the Singapore market has outperformed regional bourses, we expect a rocky ride for Singapore equities, held hostage by the still developing emerging markets uncertainties.

STI has fallen 10% to 3088 since May 22 when FED Chairman first hinted of QE tapering. We are close to the support level of 3050, at 13.1x PE (-0.5SD). Consensus has been expecting the FED to start to taper in Sept, a positive signal that the US is on a firmer footing for recovery, which could provide some stability to the market. Recovery names should outperform in this situation while yield sensitive sectors such as SREITs will remain under pressure. If tapering of QE is pushed back, volatility continues, and could push STI to test 2900 (12.9x PE or -1 SD) if the selldown in emerging economies continues.

Growing optimism about the improving US recovery and Europe's economy moving past the recession trough should see a return in interest among recovery names and companies with significant revenue exposure in both regions. Technology stocks are early recovery plays - CSE and Venture have significant exposure to US/Europe and offer attractive yields of 4.7% and 6.7% respectively. Selected industrials - Ezion and Goodpack will leverage on their niche positions in the global arena. Stocks with earnings visibility supported by yield are likely to remain in favour - our picks are SingPost, Comfort Delgro, ST Engineering and Hutchison Port. Avoid stocks with exposure to emerging markets which are likely to Underperform - Petra, Acott REIT, Religare, AITand SingTel.

4Q13 core earnings for Amtek Engineering were below but sequential improvement suggests worst is over for now. New programmes and continuous cost management are expected to drive core earnings growth. Upgrade to HOLD, upped TP to S$0.48 on earnings rollover to FY14F.

Jaya Holdings has signed a contract to charter its new build DP2 Platform Supply Vessel (PSV) "Jaya Vigilant" for a long term operation in the Indian Ocean, offshore Mozambique. The two year contract, which includes charterer's options has a value of more than US$20m. 

According to Reuters, the Indonesian government has released a slew of measures to combat the declining Rupiah. Amongst them is to increase mandatory position of biodiesel used in diesel and expediting investment in crude palm oil by giving tax holidays and tax allowances as incentives.

Our view :- 

On biodiesel:

Doubling the mandatory blend of biodiesel to 10% (as was suggested by Deputy Minister for Energy and Mineral Resources in its website) should theoretically raise domestic biodiesel consumption to 1,600m litres from 800m litres; and increase Indonesian biodiesel production to roughly 3.0m MT in FY14. This assumes a 10% decline in biodiesel exports due to EU anti-dumping tariffs. CPO consumption of 3.0m MT for biodiesel would represent c.39% of Indonesia's projected FY14 palm oil demand of 7.6m MT. If realised, we believe this would reduce global palm oil inventory significantly and boost palm oil prices/export value. However, we remain sceptical whether such policy would remain should palm oil prices jump to the detriment of cooking oil consumers in Indonesia.

On palm oil investment:

Although tax holidays and tax incentives are good news, we remain concerned on the implementation of the above proposed changes on plantation owners.

On effectiveness in shoring up Rupiah:

We believe the above plans would not have any immediate impact on the Rupiah, as reduced diesel imports would be gradual.

CWT has entered into an agreement to acquire the entire 100% equity stake in Sinsenmoh Transportation for S$19m cash. Established in 1978, SSM is a Singapore logistics company which undertakes chemical warehousing and transportation activities in Singapore. The acquisition of SSM is part of CWT's ongoing efforts to enhance the Company's chemical storage, handling and transportation capabilities.

Giken Sakata is placing up to 55.2m new shares at an issue price of S$0.024 each. The issue price represents a discount of approximately 32.4% to last volume price. Net proceeds of about S$3.0m will be used for repayment of loans and general working capital of the group.

In property news, development charges are generally expected to go up from Sept 1 on the back of higher land prices over the past six months. However, the pace of hikes may be conservative in line with the objective of promoting a stable property market, said some property consultants polled by BT. For the upcoming revision, property consultants expect the average DC rate for commercial use to rise between 3 and 10 per cent. For landed residential use, a smaller rise is predicted, between 0 and 5 per cent.

Inflation in Singapore inched up slightly to 1.9% in July from 1.8% in June, as private road transport costs rebounded after two consecutive months of decline, thanks in part to higher car prices. The market does not expect price pressures to remain contained below 2% for much longer - and certainly not beyond 2013 - as restructuring pains and a tight labour market will continue to drive up wages and consumer prices.

U.S. stocks rose as investors watched FED officials for signals on stimulus cuts after data showed home sales plunged. Purchases of new U.S. homes plunged 13.4% in July to 394k; the most in more than 3 years that raised concern higher mortgage rates will slow the real-estate rebound. The reading was the weakest since October and was lower than any of the forecasts by 74 economists that Bloomberg surveyed. The 10-yr treasury yield eased to 2.81%. Meanwhile, FED officials have rebuffed international calls to take the threat of emerging markets fallout into account when tapering US monetary stimulus.

Source: DBSV